Research

Abstract: We study the behavior of Covered Interest Parity (CIP) deviations – aka the CIP basis - in Emerging Markets (EM). A major challenge in computing the CIP basis in EM’s lies in measuring local currency interest rates which are free of local credit risk. To do so, we construct a ‘purified’ CIP basis for eight major EM currencies using supranational bonds issued in EM local currencies and US dollar going back twenty years. We show that this ‘purified’ CIP basis aligns well with theory-implied predictions. In the cross-section and the time-series, the basis correlates with fundamental forces driving supply and demand for dollar forwards.

"Unconventional Fiscal Policy in Times of High Inflation", with A. Dizioli, P.O. Gourinchas, C. Jackson, D. Leigh, September 2023.

Paper presented at the ECB Forum on Central Banking, June 2023, Sintra (Paper, Slides, Video).

IMF Working Paper 2023/178,

Chapter 19 in B. English, K. Forbes and A. Ubide (eds) Monetary Policy Responses to the Post-Pandemic Inflation, London: CEPR Press, pp. 331-345.

Abstract: The surge in energy prices in 2022 has been a defining factor behind the increase in euro area inflation. We assess the impact of “unconventional fiscal policy,” defined as the set of fiscal measures, possibly expansionary, motivated by a desire to mute the effects of the increase in energy prices and to lower inflation. Overall, we find that these unconventional measures reduced euro area inflation by 1 to 2 percentage points in 2022 and may avoid an undershoot later on. When nonlinearities in the Phillips curve are taken into account, the net effect is to reduce inflation by about 0.5 percentage points in 2021-24, and keep it nearer to its target. About one-third to one-half of the reduction in 2022 reflects the direct effects of the measures on headline inflation, with much of the remainder reflecting the lower pass-through to core inflation. The fiscal measures were deficit-financed but had limited effects on raising inflation by stimulating demand and instead modestly helped to stabilize longer-term inflation expectations. Looking ahead, the prospective decline in inflation in the euro area is partly due to fortunate circumstances, with energy prices falling from their 2022 peaks and their pass-through effects fading, and with less economic overheating than in economies such as the United States. Implementing similar measures in the face of a more persistent increase in energy prices, or in a more overheated economy, would have caused a more persistent rise in core inflation.

Media coverage: The Economist, Financial Times, Visao

"The effectiveness of job-retention schemes: COVID-19 evidence from the German states", with S. Aiyar, May 2022, also IMF Working Paper 2021/242 .

Abstract: Kurzarbeit (KA), Germany’s short-time work program, is widely credited with saving jobs and supporting domestic demand during the COVID-19 recession. We quantify the impact by exploiting state-level variation in exposure to the pandemic shock and KA take-up. We construct a shift-share measure of the labor demand shock and instrument KA take-up using the pre-existing, state-specific share of workers eligible for KA. We find, first, that KA was crucial in mitigating unemployment: absent its expansion the unemployment rate would have increased by an additional 3 pp on average at the trough of the recession. Second, KA also bolstered domestic demand: the contraction in consumption could have been 2 to 3 times larger absent the program. Finally, we provide preliminary evidence on the sensitivity of the medium-run reallocation of resources to the prevalence of job-retention schemes during the Global Financial Crisis.

Media coverage: Hutchins Roundup, Eurointelligence, IMFBlog

"Wealth Inequality and Private Savings: the Case of Germany", May 2020, IMF Working Paper No. 20/107

Media coverage: The Economist, The Guardian, The Wall Street Journal, Handelsblatt, Reuters, Süddeutsche Zeitung, FAZ, Die Welt, Focus

Abstract: This paper explores the interaction between corporate ownership concentration and private savings, and by extension, the current account balance in Germany. As high corporate savings largely reflected capital income accruing to wealthy households and increasingly retained in closely-held firms, the buildup of external imbalances in Germany has been accompanied by widening top income inequality, rising private savings and compressed consumption rates. Rising corporate profits in an environment of high business wealth concentration account for 90 percent of the rise in the private savings rate and a third of the increase in the German current account surplus over 1999 - 2016.

"Innovation and Corporate Cash Holding in the Era of Globalization", with J. Ahn and K. Adler, November 2018.

Media coverage: Central Banking

Abstract: We document a broad-based trend in rising cash holding of firms across major industrialized countries over the last two decades, a trend that is most pronounced for firms engaged strongly in R&D activities. Our contributions to the literature are twofold. First, we develop a simple model that brings together the insights from modern trade theory (Melitz, 2003) with those of contract theory in corporate finance (Holmström and Tirole, 1998) to show that increased openness to trade can raise the returns to innovation and the demand for cash holding as firms insure against innovation-induced liquidity shocks. Second, we derive sharp empirical predictions and find supporting evidence for them using firm-level data across major G7 countries during 1995-2014, a period that saw an unprecedented rise in globalization and technological innovation.

"The Rise in Corporate Saving and Cash Holding in Advanced Economies: Aggregate and Firm Level Trends", with C. Maggi, November 2018.

Media coverage: Handelsblatt

Abstract: Using cross-country national accounts and firm-level data, we document a broad-based trend in rising gross saving and net lending of non-financial corporates across major industrialized countries over the last two decades, though most pronounced in countries with persistent current account surpluses. We find that this trend holds consistently across major industries, and is concentrated among large firms, driven by rising profitability, lower financing costs, and reduced tax rates. At the same time, higher gross corporate saving have not supported a commensurate increase in fixed capital investment, but instead led to a build-up of liquid financial assets (cash). The determinants of corporate cash holding and saving are also broad-based across countries, with the growth in assets of large firms, R&D intensity, and lower effective tax rates accounting for most of the increase over the last 15 years.

"Finance and Employment: the Working Capital Channel", with L.Liu, IMF Working Paper 17/189.

Media coverage: BusinessFortNight

Policy Papers and Other Writings:

"Post-pandemic Productivity Dynamics in the United States", with J. Platzer, IMF Working Paper 2024/124.

"Drivers of Post-COVID Private Consumption in the U.S.", with L.F. Jirasavetakul and J. Zhou, IMF Working Paper 2024/128.

"COVID-19: How Will European Banks Fare?", with S. Aiyar, A. Jobst, A. Mineshima, S. Mitra, M. Pradhan. Departmental Paper No. 2021/008.

Media coverage: SUERF Policy Brief

"Understanding the downward trend in labor income shares", with M. Das, Z. Koszan, W. Lian, Chapter 3 in World Economic Outlook, April 2017.

Media coverage: Financial Times, The Guardian, Bloomberg, Süddeutsche Zeitung

“Tackling Gender Inequality in Asia: the case of Korea”, with D. Furceri, J. Hwang, M. Kim, Chapter 6 in Women, Work, and Economic Growth: Leveling the Playing Field, edited by K. Kochhar, S. Jain-Chandra, M. Newiak, Washington DC: International Monetary Fund, Fall 2016.

"Where are we headed? Perspectives on Potential Output", with P. Blagrave, D. Furceri, R. Garcia-Saltos, World Economic Outlook Ch 3, April 2015.

Media coverage: Financial Times, The Economist, The Wall Street Journal

"Recent Labor Market Reforms: A Preliminary Assessment", Ch 1 in Spain: Selected Issues, IMF Country Report No. 15/233.

"Recent U.S. Labor Force Dynamics: Reversible or not?", with R. Balakrishnan and J.Sole, IMF Working Paper 15/76.

previous version in "United States: Selected Issues", IMF Country Report No. 14/222, July 2014.

Media coverage: The Economist, The Hutchins Roundup

"Strategies for Reforming Korea's Labor Market to Foster Growth", with D. Furceri, J. Hwang, M.Kim, T.Kim, IMF Working Paper 14/137.

Media coverage: Bloomberg Business, South China Morning Post

"The real exchange rate and employment in China", with Ruo Chen, IMF Working Paper 11/148.

Media coverage: The Wall Street Journal

“The Human Cost of Recessions: Assessing It, Reducing It”, with Prakash Loungani, IMF Staff Position Note 10/17, 2010.

“Monetary policy analysis in low-income countries in the face of the global crisis: The case of Zambia”, with Alfredo Baldini, Andrew Berg, Jaromir Benes and Rafael Portillo, IMF Working Paper 12/94.

“The Tragedy of Unemployment”, with Prakash Loungani, Finance & Development, Vol. 47 (4), pp. 22-25, December 2010.

“The Challenges of Growth, Employment and Social Cohesion”, with Prakash Loungani and ILO co-authors, Oslo, September 2010, http://www.osloconference2010.org

Media coverage: The Economist, The New York Times

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